Thank you for the questions! Let me describe what the current thinking behind LP rewards on Ethereum has been and would be in the nearest future first, and then I’ll try to answer your specific questions.
What’s the main objectives of LP rewards on Ethereum have been:
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Get stETH stakers the opportunity to exchange their assets back to ETH.
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Get liquidity diversified enough for resilient price feeds to be possible.
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Secure enough liquidity for potential liquidations on money markets.
As a secondary objectives, we were looking to 1) secure higher trades volume (“liquidity utilization”); 2) lower the spend without major drastic motions from our side. Basically those goals were aiming to get TVL first & ensure the exit option for ones who want to “unstake” before withdrawals are enabled.
Another thing to note, reWARDS doesn’t (and, in my opinion, shouldn’t) wield resources to fight with extreme market conditions we saw lately. Basically that means we can’t get significantly more ETH in the Curve pool with any amount of incentives we can reasonably allocate there, and don’t want to “allocate unreasonable amount of incentives” either. The market conditions are calling for change in our thinking about LP rewards.
So, with the big outflow of ETH from the (w)stETH pools & the high volatility of the market, I’d say that the focus of the reWARDS on Ethereum should be:
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Secure enough ETH/stables liquidity for potential liquidations on money markets.
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Ensure “price resiliency”: get the liquidity diversified enough so the amount of trades required to push the price down, say, 1% is high. Note that it’s not to target specific price, but to make the price stETH does have at the moment more stable.
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Get liquidity diversified enough for resilient price feeds to be possible.
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Lower the spend where possible (across all the LP incentive programs).
Again, liquidity utilization is important bonus objective here.
Hope that gives us the shared mental model.